I find it interesting how even UR readers, who certainly can't be accused of not having thought about the issue (I really have done my damnedest to drive away anyone who has no patience with large thoughts expressed at length, and I'm quite happy with the result), are very used to thinking of the relationship between state and citizen as fundamentally adversarial.

Of course, this is because it is. Clearly, no one who's still reading this blog is tempted to refer to the State as "us," or thinks it somehow constitutes a "community." Most of us are quite sick of this giant cancerous blob which wants to own our minds and tell us what to do.

Nonetheless, it continues to grow. I think it's fair to say that attempts to reverse this trend, or even to stop it, have been quite unsuccessful. Perhaps it's worth reconsidering the strategy.

My theory, which I admit is unorthodox, is that most attempts to defeat or limit the growth of the State have failed mainly because they've tended to attack it on political grounds. That is, they have proposed governmental mechanisms to limit the growth of government. It is not too hard to see why this might fail - see my latest discussion with Nick Szabo and others.

Instead, I think there is a basic economic problem that needs to be solved. To me, the growth of government looks just like the byzantine structures that evolve around any malstructured market, such as a rent-controlled housing market. Effectively, I think, libertarians who don't believe the state should exist are like New Yorkers who don't believe landlords should exist. They pay rent anyway - they just pay it in a bizarre swirl of "fees" to "brokers." And they think it's perfectly normal that in 2007, they live in an apartment with no garbage disposal.

To me, the State is simply a real-estate business on a very large scale. The economic error is in thinking that the rents (taxes) its subjects pay are payments for services - much as the New Yorker can tell you what a tiny percentage of his $500/month stabilized rent goes back into maintenance. (Typically this percentage is zero.)

What the libertarian, like the New Yorker, is neglecting, is the capital cost. The nefarious factions that control the State these days put a whole lot of work into gaining that control. They conspired for literally hundreds of years. They didn't do that for nothing. So, through their system of so-called education, they have convinced us - and, of course, themselves - that we need an enormous variety of "services" and "regulations" which they are happy to administer for lucky little us.

For the most part, these are nothing but disguised profits. And even if you can defeat the interest groups and cut off their lifelines, you create an economic vacuum which, if it can be maintained for a millisecond, will certainly be filled by some other nefarious faction. Like the New York socialist who tries to eliminate rent, you are trying to dig a hole in the ocean.

Of course there is an adversarial relationship between the libertarian and his government, just as there is an adversarial relationship between the New Yorker and his landlord. Every economic relationship which is held in disequilibrium by administrative means is, by definition, adversarial. In both cases, this battle becomes a matter of mental habit.

The New Yorker simply has no conception of what a normal relationship between tenant and landlord, based on mutual interests mutually agreed, might look like. Well, okay, he has some conception, because perhaps he has visited friends outside city limits and noticed that they have garbage disposals, walls that have been painted in the last 20 years, etc, etc.

The libertarian has no such analogy. Nowhere in the world is there a country that is run like a business. The closest examples - places like Hong Kong, Dubai and Singapore - are fascinating in many ways, but hardly free from politics.

This is the point - which I don't think I've been very good at getting across - of my Fnarg examples. The goal of these examples has been to use sci-fi magic to try to ask the question: if a country was run entirely for profit, and didn't have to worry about securing itself from its enemies internal or external, what would it do?

Naturally, since the question depends on magic, so does the answer. This gedankenexperiment can't answer the question of how to fix government. But perhaps it's a piece of the puzzle.

There are two variants of the experiment. In the first, the private country is a monopoly. In the second, it's competing with other governments - a much more attractive proposition. Let's answer this one first.

Fnargland is a business. Like any business, it has no reason at all to alienate its customers. Does the barista at Starbucks spit in your coffee? The happier Fnargland can make its residents, the more it can charge them. This is basic economics.

It is also basic economics that you can't make someone happier by reducing the set of actions he or she can take. In financial terms, you can think of the right to do something as an option. There is no such thing as an option with negative value.

Therefore, the corporate administrators of Fnargland can be expected to operate their country under libertarian principles. Fnargland will ensure its customers deal fairly with each other, and otherwise leave them alone. This is both in its interest and in theirs.

(Except, of course, for the taxes. In Fnargland, taxation is not theft. Taxation is rent. Income tax, however, is extremely annoying, so perhaps a property-tax-only regime - a la Henry George - might be preferred. One benefit of this is that FnargCo's shareholders find it easy to calculate the expected return on their equity, because it will follow the presumed ascent of the property market.)

For a little libertarian "red meat," here are some freedoms I think citizens of Fnargland would enjoy. My basis for enumerating these freedoms is not that I think they're cool and I would love to live in a place where I had them - although I would - but that I can't imagine how FnargCo could have even a particle of interest in infringing them.

One, freedom of computation and communication. Fnargites can compute any function and send each other the result. Fnargland is beholden to no Mickey-Mouse copyright monopoly. The Ring protects it from any air, land, or sea assaults by the MPAA.

Two, freedom of contract and arbitration. Unless they are conspiring to commit a crime, Fnargites can make any agreement with each other, assign any arbiter to judge performance, and submit to any penalty in enforcement.

Three, freedom of medicine. Fnargites own and are responsible for their own bodies. No committees of bureaucrats are charged with telling them what pills they can and can't take, what experts they can and can't consult, etc, etc.

Four, freedom of industry. As long as they are not making weapons to assault each other, Fnargites can build anything they like any time for any reason. Fnargland is also not beholden to any patent monopolies. "Intellectual property" does not increase the value of FnargCo's real estate - quite the contrary.

Five, freedom of instruction. Bizarre as it may seem in this day and age, Fnargites are responsible for raising their own children. They may instruct them as they see fit, and own them until they choose to emancipate them.

Six, freedom of finance. Fnargland does not interfere with its customers' financial lives. In particular, it does not subsidize debt, promote "cheap money," run Ponzi schemes, etc. It also respects the right of its customers to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures. (A particularly anachronistic provision.)

Obviously, these six liberties are not currently enjoyed by us poor non-Fnargites. Perhaps they are not as valuable as we crazy libertarians think, and the dripping, lava-encrusted waste of Fnargland will remain barren forever. But somehow I doubt it.

Of course, if any readers feel that FnargCo would have a motivation to infringe these freedoms, or to abuse its customers in some other appalling way, the comments section is, as usual, open. It may help to imagine yourself as some hotshot from McKinsey, suggesting new revenue measures to the skeptical board of directors.

31 Comments:

George Weinberg said...

Well, of course there's always the possibility of people doing things because they have wrongheaded ideas as to what the consequences of their actions will be. If there were a multiplicity of corporate island states, quite likely at least one of them would ban Laphroaig on the theory that that will lead to increased profits, but we could just avoid that one.

But it's true (as far as it goes) that most antilibertarian measures are enacted for reasons other than profit maximization. In particular, measures like prohibition come about because certain individuals see themselves as being like responsible parents, and the rest of us as like unruly children that must be protected from themselves.

Is your argument that bribes would be more effective than bitch-slaps for persuading these would-be nannies to go away?

As I've explained (but I'll try again, and keep trying!), any entity wielding police powers is fundamentally different from the voluntary corporation or landlord you assume a government can emulate -- thus what they "want" is profoundly different from that of a participant in a voluntary market and in many ways almost the opposite. Here are some of the basic differences:

(1) People judge much of their wealth in a relative fashion: e.g. "my house is bigger than yours". If one can express such a preference forcefully through a police power, rather than through mere voluntary trade, it can just as easily take the form of making the other guy's house smaller as it can making one's own bigger. (Indeed, much of zoning politics is explained by this phenomenon).

(2) As I've stated, "people have general preferences for power beyond just making money -- the Droit de Seigneur victor mentioned is one of many examples of this. People often have a strong preference to control people's lives if they can." Giving them police powers gives them the power to do so directly by force rather than indirectly by persuasion.

(3) An entity with arbitrary police powers can make exit costs arbitrarily high. A landlord can't kidnap you and force you to stay imprisoned in their dump.

To apply the economic laws or outcomes of voluntary markets to the analysis of police powers is thus extraordinarily mistaken.

BTW, a good way to to make exit costs very high is to bundle police powers with territories that as fully as possible encompass social networks -- traditionally, by as fully as possible encompassing at least one language group. Thus, for example, the nation-state. Another way is to make sure the state fully controls fixed resoures like real estate, farmland, minerals, etc. as well as strategic chokepoints for goods like ports. It should not be suprising, unless one treats a government like it was just another voluntary market participant, that governments to maximize their revenues form themselves in such a way as to maximize exit costs up to the point of rebellion.

Excluding your (3) for a moment, it seems extremely clear to me that actions (1) and (2) are not in the interest of FnargCo's shareholders.

Therefore, it strikes me that you must either (a) dispute this observation, which strikes me as obvious; or (b) claim that because FnargCo's agents exercise police powers, there is some special reason to expect a breach in the line of control from shareholders to corporate officers to corporate employees; or (c) see some other flaw in my reasoning.

As for (a), how could FnargCo's shareholders feel any joy at the thought that their agents are, say, exercising the Droit de Seigneur, or persecuting Fnargites in any other way? There is such a thing as shareholder activism, but it is typically pretty weak (much exacerbated by the press) and it tends to be pro-ethical rather than anti-ethical.

As for (b), military forces routinely exercise police power and a lot more. Their discipline is if anything much stronger than the level of control that, for example, Eric Schmidt exercises over Google.

As for (c), I remain curious.

And as for your (3), note that the interest of the shareholders is to maximize their equity, ie, the value of Fnargland itself. What do you think would happen to the price of Fnarg estate the day after your iron curtain went up? How many people want to buy land in a prison? Or anywhere that does not respect the rule of law?

I think most of the phenomena you attribute to a desire to maximize exit costs are instead the result of an issue I've done my best to exclude from Fnargland: the problem of maintaining security.

Until relatively recently, Europe was controlled by a patchwork of very consistent revenue maximizers: monarchs and other princes. But it was only in the 20th century, under the rule of the People, that migration barriers appeared.

(I think you are still being misled by the erroneous cladogram of government models that we all had drilled into our heads so many times. In reality, I think, all populist states, both "people's democracies" and "liberal democracies," are on one clade; monarchies and other propertarian systems of government are on another. Stalin had more in common with FDR than with Nicholas I.)

As you point out, it is impossible to avoid error. All we can do is not create incentives for error (such as banning Laphroaig, unless a substitute such as Lagavulin is made available).

As for bribes and bitch-slaps, the way I'd put it is that when you systematically underprice government, as with any other commodity, you create a vacuum that the market will try to fill.

The prohibitionists, though of course they don't see it that way, are essentially paying themselves in power. For example, if you can prohibit alcohol, you can also sell alcohol licenses. A state that imposes prohibition is thus giving away money by definition.

If the state is run by profit-oriented managers, they will resist this diversion of revenue. If the state is run as a public service, though, there is no source of power to oppose the feeling of righteousness that the "drys" get from imposing their preferences on others - except the electoral system, which doesn't work terribly well.

The problem with running a government as a public service is the same as with running any other large enterprise as a public service. What starts out as inefficiency rapidly becomes pure weirdness. It becomes very hard to disentangle the actual purpose of the enterprise from all the strange epiphenomena which spring up around it. Witness the odd quasigovernments that late Soviet state enterprises became, running their own farms and school systems for the supposed benefit of their employees.

" it seems extremely clear to me that actions (1) and (2) are not in the interest of FnargCo's shareholders."

What is extremely clear that you are extraordinarily wrong in this matter. You are merely repeating what an economic textbook would say shareholders in a corporation acting in a voluntary market would prefer. You are neglecting shareholder-management conflicts of interest (which are of the same kind as voter-civil service conflicts of interest, but operate on a much smaller scale in most corporations than in large governments or in your proposal) and, much importantly, neglecting the fundamental differences police powers make in one's ability to express one preferences, as I have described. Just as shareholders don't mind major executive perks like fancy offices and jets, shareholders in Fnargl Inc. won't mind large doses of Droit de Seigner and the like -- they wouldn't go farther than making sure the shareholders themselves were immune from such victimization. Indeed, the shareholders could vote themselves their own Droit de Seigner rights with respect to non-shareholders, as well as forbidding non-shareholders from buying big houses, amassing wealth generally, or, of course, becoming Fnargl shareholders. This is the way people can act with coercive powers than a normal corporation in our voluntary market cannot and would not do.

Furthermore, there is an alignment of interests between the shareholders and the civil service in making the civil service is rewarded in ways that don't involve raising their pay -- and that usually will come at the coercive expense of their subjects (who being coerced and having high exit costs, in no way resemble "customers" in a free market, despite the modern tendency of the IRS, for example, to call taxpayers "customers" -- an Orwellianism you seem to be in the process of turning into full-fledge theory!)

Your grave mistake comes in part from naive application of economics and in part from neglecting colonial corporate history which demonstrates these effects.

I certainly don't mean to imply that personal experience is the be all and end all of everything, but I'm curious - have you spent much time as a corporate employee or a investor?

First of all, you argue that shareholders may use the company's resources to award themselves special privileges.

There is a reason Starbucks shareholders don't get free lattes. The reason is not that some law prohibits it. The reason is that the investors and managers of Starbucks understand how a company works.

The whole point of equity is that the profits of the corporation are distributed evenly among its shareholders. If shareholders receive any kind of privilege outside their dividend, equity becomes inequity - so to speak - and the whole structure collapses.

As for your "shareholder-management conflicts," are you invoking Berle and Means? It is strange how, when you scratch a libertarian, you find a socialist. There is an entire body of doctrine, invented in the '30s by the aforementioned characters, and promoted by such as the New York Times to this day, that claims executives are systematically screwing shareholders. All of it is pure Bellamyite nonsense. The promoters of these theories are simply people who believe that we should all be part of the Industrial Army.

It is funny how, say, Joseph Nocera at the Times, who I'm very confident has never managed either a company or a portfolio, can appoint himself as an expert on both sides of this relationship and purport to speak up for the "little guy." In reality, he speaks for himself, and for the Polygon - big surprise.

Raping your "customers" - or whatever you want to call them, let's say "subjects" - raping your subjects is not analogous to paying yourself with an executive jet to dodge some tax law. It is analogous to selling off your company's factories and diverting the revenues to your own pocket.

When you run a country as a business, you profit from your subjects' prosperity. Anything that imposes disutility on them - such as raping them - is equivalent to a tax and is such a confiscation. Since shareholders cannot receive dividends in rape, it violates fiduciary obligations.

You are left with the premise that, since FnargCo is sovereign, its shareholders cannot enforce their fiduciary rights against wayward executives. But this is specifically why I incorporated FnargCo outside Fnargland.

I have explained the abuses of colonial corporations by pointing out that, since their franchise was never secure, they had strong incentives to loot their capital.

(Even so, I am not aware of any use of the Droit de seigneur - which is, in any case, an urban legend, or some might say blood libel, spread in the 19th century, presumably by antimonarchists.)

As I've explained, for this reason the behavior of monarchies - which you yourself have studied - is a much better guide to the actions of a profit-motivated sovereign. I'm sure you're aware that tax rates under monarchical rule, for example, were far lower than in any democratic country. One could ascribe this to the benevolence of the monarch, but this explanation is too monarchist for my taste :-)

Here is another thought-experiment that may make my point of view clearer.

Imagine that Fnargland is actually on another planet, let's say Alpha Centauri, and its subjects are not human at all. Instead of humans being ruled by aliens, as in our first example, aliens are being ruled by humans.

Perhaps there is some wormhole to AC through which goods and services flow in one direction, fiduciary control in the other.

In this case, FnargCo is not profiting from the prosperity of its "customers," or even of its "subjects," but from its "aliens." Nonetheless, the goal is the same - revenue maximization.

Presumably you believe that people are most prosperous when they are free under the rule of law - a conviction that your entire blog is constantly demonstrating. Presumably you believe that this is not a property of Homo sapiens specifically, but of any independent agent, including aliens.

Therefore, I can't see how you think it would be in the interest of AlphaCo, whose profits must be some function of its aliens' prosperity, to violate these principles.

Without belaboring the subject too much, let me focus in on your assertion that voter-civil service conflicts are equivalent to shareholder-management conflicts.

This distinction, which I maintain is extremely important, is exactly the difference between democracy and formalism. It is the reason why in my book you can be a democratist or a formalist, but not both.

First, let me invert my usual approach and describe the practical result of these conflicts.

I'd like to think you agree that, in general, barring various exceptions, that (a) the civil service tends to prevail in its conflicts of interest with the voters, and (b) the shareholders tend to prevail in their conflicts of interest with management.

(b) is controversial. It shouldn't be. It is very easy to see what a corporation run for the benefit of its managers, not its shareholders, looks like. Look at Russia in 1991, for example. There are certainly occasional violations of fiduciary responsibility in the US today - partly, I'd argue, because of corporate governance structures that have not evolved since the 1930s - but I have never worked for any company in which the managers were not operating in what they perceived as the best interest of the shareholders (and I've never been a corporate officer), and I have worked for a lot of companies.

So why do these conflicts resolve differently? Why do shareholders win, and voters lose?

In my view there are two main differences.

One, shareholders have zero exit cost - they can sell their shares. A shareholder who disagrees with the way a company is being managed tends to do so. The result is that shares of mismanaged companies tend to accumulate in the hands of takeover specialists. This weeds out corporate coziness in a very aggressive way - for example, the '80s takeover boom smashed a lot of very inefficient managements. (Of course, the managements of such takeover victims as Pacific Lumber were efficiency itself compared to the civil service.)

Two, and much more important I think, the benefit civil servants supposedly provide to voters is not quantifiable. It cannot be measured. Because it cannot be measured, it cannot be distributed equally.

The result is that no one can possibly argue that any government on earth exists to reward each of its voters equally. Whereas the same claim is trivially true for all corporations, because their only relationship with their shareholders is financial.

The result is that corporations are not convulsed by internal political struggle over which groups of shareholders they should favor or disfavor. And this is why they're a hell of a lot more efficient.

So no, it is not simply a difference of scale. In fact we can see democracy operating on a small scale in the various communal or cooperative movements that socialists have been trying to set up for the last 200 years. Basically all disasters, and I'd say the reason for this is that small democracies are more democratic than large ones.

(Whereas small corporations are certainly more efficient than big ones. At least in my experience. But I think the inefficiency of scale is logarithmic.)

Does this make any sense at all to you? Do you see any hidden assumptions that it fails to question?

Oh, and there's also a (c): civil servants have all sorts of tools by which they can convince the voters incorrectly that they are acting in the voters' behalf.

Corporate managers, for example, don't tend to control the primary education of their shareholders. Hamburger University is not really a university, and there is no Hamburger Elementary. (And let's hope this doesn't change.)

I send it more in reaction to your headline than to the content of your post, but you might be amused at the story of a recent episode in which I was marginally involved.

A non-profit organization of which I formerly was a director was audited last year by the IRS. It was a gruelling experience for the Secretary-Treasurer, who bore most of the brunt of dealing with the IRS agent's demands. According to him, the agent's demeanor verged on the abusive. Despite this, the audit was completed in January of this year with no violations found, and the organization's tax-exempt status was confirmed.

Just a few weeks ago, I learnt that the IRS had sent this organization a "customer service questionnaire." Honest Injun! I have not seen the questions asked on it, but in discussion with fellow past and present directors, we concluded that if we described the IRS representative as surly, threatening, and overbearing (which he was), his bosses would probably give him a promotion.

There is a long-standing American propensity for intentionally describing things as they aren't.

To give just one example in the private sector, you may have noted that while hardcover books used to have sewn bindings, which were very sturdy and long-lasting, most new hardcover books now have bindings in which the pages are held together only by glue, as paperbacks have had for years. The trade name for this process is "perfect binding." It is called "perfect" because after two or three good readings the binding falls apart like a scratch pad.

Moving to the public sector, by the same principle, people described as "civil servants" neither exhibit civility nor render any helpful service. As some wag once observed, a civil servant is like a wet firecracker - he doesn't work, and can't be discharged.

You still persist with the absurd ideas that people prefer only money and that the laws of the voluntary market are universal regardless of coercion. Money mainly just a means to an end, and with police powers those ends can often be obtained in ways impossible through voluntary trade.

This is why your Starbucks examples are entirely specious. Starbucks won't spit in my latte because I could with no terrible difficulty choose to buy my coffee at Peet's or Seattle's Best next time, or to brew it at home. But if there weren't laws to the contrary, you could entirely expect your tax auditor to demand a few nights with your wife if you can't cough up the dough, and might enjoy spitting in your coffee besides. He might easily call this "customer service." There are plenty of historical examples.

Your planet where humans rule weaker aliens has, as do most of your examples, a real-world analog on earth that works quite differently, and in this case practically in the opposite manner, of the way you claim. That analog is the zoo, where humans use our superior force to imprison weaker species for learning and entertainment. It is the humans who prefer to pay money to be entertained by the less powerful animals (or your weak aliens), not vice versa.

You can easily dress up prison states in pseudolibertarian drag by calling them "corporations" with "shareholders." By your theory, the Soviet Union would have been the greatest government ever if only the Politburo had paid Communist Party members some dividends.

michael - yes, ever since the Pendleton Act, the "civil service" has joined the judiciary as our second (official) branch of unaccountable government.

nick,

"If there weren't laws to the contrary..."

But, of course, in Fnargland there are laws to the contrary. The tax auditor in Fnargland is responsible to FnargCo law in just the way the tax auditor in Maryland is responsible to US law. And for pretty much the same reasons.

I have explained many times why it is in FnargCo's interest to impose such laws, and I have provided it with the power to enforce them.

The problem is that, for you, FnargCo's "laws," which are intended to maximize the revenue produced by Fnargites, by minimizing the disutility imposed on them and maximizing the ratio of revenue to disutility, are not really laws.

Rather, they are mere corporate ordinances. To you, FnargCo is not and will never be a legitimate government. Its grubby financial motivations for providing good government cut no ice at all for you.

What we're seeing here, I'm afraid, is a disagreement that goes right to the heart of democratic idealism, which is the leading modern inheritor of the Christian tradition.

To you a law is not a mere rule intended for a practical purpose. Government is not a mere enterprise which does X and doesn't do Y.

Rather, government exists to implement natural law, which is, historically at least, God's law. It is a fundamental matter of right and wrong.

Both the democratic theory of law, and its libertarian ancestor, are Enlightenment inventions that emerged in competition with the divine-right theory of law. All of these are moral theories of law.

Your fundamental problem with FnargCo, I think, is that it is not legitimate. I wonder if you have the same problem with Dubai.

My view is entirely different. To me, good and bad government is defined not by what a government is, but by what it does. Morality for me is not an intention, but a result. I am interested in designing stable mechanisms for good government. I care about the results of these mechanisms; I don't care how they work.

So - for example - I actually think converting the Soviet Union into a corporation proper would have been a wonderful way to repair it, because I think it very quickly would have lost all resemblance to a "prison state." That is, as I've explained, it would have had every reason to stop abusing its citizens.

Is Hong Kong a "prison state"? Is Dubai? Was France under Louis XIV a "prison state"? What about the Dual Monarchy?

Zoos are zoos because most animals are not capable of producing anything besides entertainment for humans. The exceptions live on farms.

If you were actually given Fnarglike authority over a country of humans - or intelligent aliens - and judged by your performance in extracting revenue from them, I think you'd rapidly discover that abusing your charges was not the most profitable way to treat them.

I find it regrettable that your Lockean idealism seems to make it so difficult to consider this problem. Because both of us have the same goal: understanding how to build a social system that, in practice, gets to libertarianism and stays there.

Unfortunately, your definition of libertarianism seems to not be defined simply in terms of observable behavior. It seems to include a spiritual component which I do not understand, and am therefore unable to argue with.

I am inclined to agree with Nick. I present a sociobiological argument.

Today, we perceive the (modern) State to be, as you say, a "real-estate business on a very large scale". But historically, the State did not originate as an efficient rent-collection system. Rather, the State originated as an arrangement by which aristocratic families maintained their reproductive hegemony. The original purpose of the State was to effectively propagate the genes of the ruling class. Maximization of rents collected was only a means to this end. Depending on the circumstances, genocide (of the males) and mass rape (of the females) was sometimes a more effective policy than taxing the prosperity of the commoners.

Although droit de seigneur in medieval Europe was probably an urban legend concocted by anti-monarchists, the desire among ruling-class males to impregnate their virgin female subjects is certainly a universal theme in human history. Consider, for examlpe, how only recently the institution of concubinage went out of fashion. Birth control technologies and public health advances which drastically reduced natural mortality have temporarily distorted the State, but I don't think that we have completely escaped human nature.

"and when the LORD your God has delivered them over to you and you have defeated them, then you must destroy them totally. Make no treaty with them, and show them no mercy. Do not intermarry with them. Do not give your daughters to their sons or take their daughters for your sons, for they will turn your sons away from following me to serve other gods, and the LORD's anger will burn against you and will quickly destroy you."

This is not rational economic behavior. But I can imagine the shareholders of FnargCo behaving in this manner if they had their reasons.

In fact I agree - I think property on a small, personal, scale is a very natural phenomenon. And so is the State in its nasty, historical form.

The joint-stock company is not a natural phenomenon. It had to be invented. The Romans came close with their publicani, then backed away into administrative hell. The thing was perfected, really, by the Brits, and I think the Industrial Revolution might be best known as the Corporate Revolution.

The state as joint-stock company is a very unnatural arrangement. So far untried, more or less. But I am not so wedded to the natural, and I think the success of the corporate model shows there is at least some place for design in human affairs.

I think, though, that to convince people to come to your country you will need stronger assurances that immigrants will be treated as promised than just your argument that to do otherwise will be contrary to your own long-term interests. As the frog said to the scorpion, "I've heard that one before".

It occurs to me that the idea of a state as a property, managed by its owner(s) to maximize its revenues, existed in central Europe for several centuries among the many principalities of the Holy Roman Empire, whether at the level of substantial regional powers like Prussia or Bavaria, or of smaller ones such as the fragments of Saxony, free cities like Ulm or Cologne, or prince-bishoprics such as Salzburg.

In these states, rule (ownership) was variously vested in individual princes (e.g., one of the numerous Saxe-Cobourg dukes), in a secular close corporation (e.g., the burghers of Ulm) or in religious corporations (e.g., the archdiocese of Salzburg). However the ownership was structured, these principalities were ordinarily run in the way a large country estate would have been, with the intention of yielding as much wealth as possible for the landowner/ruler.

The economic system to which this practice led was cameralism or mercantilism - the notion that the prosperity of a nation was dependent on the amount of specie (gold or silver bullion) in its treasury, and that this was increased by achieving a positive balance of trade with other nations. Exports were encouraged and imports discouraged by the application of protective tariffs. The three principal theorists of mercantilism were Johann Joachim Becher, Philip Wilhelm Graf von Hornigk, and Wilhelm Freiherr von Schröder. Schröder's 1686 book "Fürstliche Schatz- und Rentkammer, nebst einem notwendige Unterrichte zum Goldmachen" (The Royal Treasury and Revenue Department, together with a necessary Instruction in how to make Money) summarizes the nature of its advice to princes.

Not all of the German principalities were successful in following the cameralist system, and indeed the duchy of Saxe-Coburg-Saalfeld went into bankruptcy in the late 18th century. The exigencies of a money economy based on gold led to the popularity of alchemy amongst German princelings, who continued to pursue the philosopher's stone well after everyone else had given up on it. Indeed, Becher, in addition to promoting mercantilism, was a notable alchemist, and introduced the phlogiston theory of combustion, distinguishing himself as the originator of not one but two highly influential errors. Schröder, on the other hand, advocated the issuance of paper money, foreshadowing the many economists since his time who have advised rulers to pursue a deliberate policy of inflation.

Mercantilism and inflation are not necessarily consequences of the proprietary state, but it is probably significant that they were its consequences the last time the idea was tried. Economics is a little better understood than it was then, but the human propensity for repeating past mistakes cannot be discounted. What is the likelihood that the shareholders of FnargCo would not follow this pattern?

Mercantilism is definitely mismanagement in my book. Fortunately, we do know a lot more about economics now.

Although our monetary system has changed, and not for the better. Clearly national fiat currencies are quite incompatible with private countries. But this is a separate discussion - and a very long one.

When you look at the princely states of Europe you see a trend toward the sacralization of the prince's rule, which I think Jouvenel is right to identify as the precursor to democracy.

It is easy to see how the strange idea that the King is the father of his people, etc, etc, can lead to economic fallacies such as mercantilism.

I think this general trend of state-worship is best understood from the perspective of internal security - a move away from the legitimation of national property by right of original conquest, toward legitimation by benevolent government.

Personally I think the former concept, especially if stripped of its heroic militaristic claptrap, is a better approximation of my essentially arbitrary, functionalist view of property rights. But I can certainly see why this is very much the minority view. The attractions of benevolent government are many.

I think you are being unfair to Nick; I, too, have problems understanding Nick's overly positive attitude toward democracy, but I realize that it might very well be my problem, not Nick's, so I prefer to listen and ask questions before making statements and passing judgments.

Now, as someone who has actually lived in the USSR and for various reasons does not share your anti-soviet sentiment (while having no problem recognizing the criminal flaws of the USSR), I think that Nick is right on the spot with comparing the Soviet Union to a badly mis-managed corporation. Actually, many large corporations do exhibit the symptoms of the USSR. Also note that most (if not all) of the really bad things that happened in the USSR (after the re-boot of the system of ownership, that is) were actually illegal by Soviet law, so I don't see how changing or introducing any particular rule could have fixed it.

While we are at it, I think that corporations are not inherently good or efficient; they were (and are) successful at a particular level of technological sophistication, when there are large economies of scale. As soon as transaction costs go down, corporate structure becomes an unnecessary overhead and interests are much better aligned by the free market than by intricate corporate governance techniques.

Example: Even though pressing CDs is marginally more efficient than burning them (a residual economy of scale quickly diminishing by the means of technological progress), the fact that your CD burner burns (almost) exactly the CDs you need, while factories produce huge amounts of CDs that nobody needs (and sometimes fail to produce CDs for which there is a demand) accounts for the fact that it is almost always (much) cheaper to burn yourself a CD than to buy that same CD in the store. The difference is MUCH more than the royalties paid to the authors of the content (for those readers, who buy the propaganda about "piracy"). Most of the difference comes from two sources: from the cost of supporting a corporate structure struggling to align incentives and from the (inherent) inefficiency thereof. Actually, copyright royalties, in my opinion, also fall in the first category.

The same, I think, is happening to the state in general and to democracy in particular. The tools of violence and propaganda are getting smaller and cheaper, and thus small, self-motivated organizations or even individuals are getting the better of states, no matter how the latter are organized.

There is already a fairly standard business model for spectacular violence: customer orders act of violence and pays expenses plus profit to escrow agent (with some advance payment to contractor), contractor performs said violence and records it on video, delivers video to customer and escrow agent, escrow agent pays contractor, customer broadcasts video (one way or another).

With automatic assault rifles costing a few weeks worth of middle-class salary (also the ability to operate them requiring a few weeks of training) and IEDs being able to reliably destroy heavy armor (and video cameras becoming a free add-on to mobile phones), who will afford all the trappings of a government?

I agree with all these comments. In particular, corporations exist because capital exists. When capital becomes negligible, whither capitalism? I am not a fan of large, centralized structures in general - I just think that the joint-stock company structure is the best way to run them when they do exist.

However, there is still one form of property that will be expensive for the foreseeable future: ownership of land, where ownership means the right to control what happens on top of it. While I welcome the emergence of non-official states such as Somaliland, Abkhazia, Transdniestria and so forth, they have a long way to go before they are desirable places for a civilized person to live. And the Iraqis with their IEDs are nowhere near even the status of Somaliland.

Also, while I never lived in the USSR I have worked for large, mismanaged corporations. So I believe this comparison is unanimous. Dilbert and Brezhnev are the same phenomenon - the latter is only more extreme.

What happens in a mismanaged corporation is that it develops internal power structures which are informal and opaque. Perhaps the newspapers have misled me, but I get the impression that the former Soviet Union suffered and still suffers greatly from this problem.

In other words, Russia is mismanaged because she does not have a single coherent management. To the extent that Putin has fixed this his efforts are praiseworthy. But I get the impression that in other ways, he has simply exacerbated the problem. I don't think the present Russian system of government is as solid or stable as the Chinese, and even the PRC leaves much to be desired from the perspective of management coherence.

I guess, I missed out on the forbidden food of knowing good and evil, but I am far less interested in how the world ought to be than in how it is and in what to expect from it in the future.

You may observe that I passed no judgment on the developments that lead to places like Somaliland, Abkhazia, Transdnestria or Iraq. Right now, these are all horrible places to be and will remain so, if (and as long as) the exit barriers (erected mostly by the outside world) remain as high as they currently are. But I also think that more and more societies will gravitate to this state of affairs because of the aforementioned technical developments, and I have yet to see a place like this turned into something considered "normal" by XXth century standards. Figuratively speaking, it may be better (in some sense) to be a tiger than a rat, but tigers are firmly on the list of endangered species, while rats breed like rats.

As for the opaqueness and informality of Russian power structures, I similarly maintain that you are too quick to pass judgment. These are also highly evolved structures and there are good reasons for their existence and repeated re-emergence: The costs of defense have been and remain very high on the vast open plains of Eastern Europe, thus it is not surprising, that people hide what they have, whom and what they know, and keep mum about the agreements that they make among themselves. The cheapest way to stay safe is to stay low and keep yourself and your belongings out of sight. Now, if you introduce formal mechanisms in this environment of insufficient and unreliable information, you end up with the classical situation of "garbage in => garbage out". Without informal correction mechanisms such as bribery and rule bargain, formal rules can wreak havoc beyond repair.

As for ownership of land, I think its role is quickly diminishing in the modern economy. The rapid and accelerating urbanization is a good indicator thereof, I think.